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Trusted foreign exchange since 1979
Trusted foreign exchange since 1979

MoneycorpUSA's posts

We have not only reached the end of the week, but the beginning of a new month. I hope everyone's month has been as good as ours.

We will be at the  Guy Fawkes Kissimmee event tomorrow, from 5:30-10pm. Biggest British event in Florida. I hope to see everyone there!

There is a dichotomy to the way investors view the pound at the moment. On one hand there is suspicion that recent figures overstate the true economic situation; higher house prices and output are believed to mask weak productivity and real earnings (Bloomberg headline "Pound slides for a third day amid bets economy can't sustain gains). On the other hand there remains an underlying bullishness about sterling even if it is insufficient to stimulate new buying (Bloomberg headline "Pound forecasts soar as BoE's Carney signals shift"). Investors' hot-and-cold attitude to the pound is mirrored elsewhere. On Thursday, Friday and Monday the yen was successively, the worst, best and worst performer among the major currencies.

At the World Islamic Economic Forum in London today Britain's prime minister will formally announce the Treasury's intention to issue a £200m sukuk, a government-bond-substitute that complies with Sharia. Because Islam forbids the payment of interest, holders of the sukuk will receive a portion of the return on the underlying asset, to which they theoretically have title. This is not as uncertain as it sounds because the return is fixed according to the yield of the equivalent gilt. The only risk is that investors find themselves lumbered with 100 metres of unfinished HS2 track in 25 years' time.

That might or might not be of greater value than the sterling that would be returned to holders of the traditional instrument. The pound took an unexpected and unusual hit early this morning in the Far East. At around midnight it slumped by three quarters of a cent against the dollar and the knock-on effect took it lower cross the board. There was nothing on the newswires to provoke the move. The assumption is that it was the work of an adventurer who thought that by taking Cable below $1.61 he ( and you can bet it was a he) could provoke a technical selloff.

What could have been positive news for the pound on Friday turned out to be nothing of the sort when the Office for National Statistics reported that UK gross domestic product expanded by a provisional 0.8% in the third quarter of the year.  The figure was exactly in line with analysts' consensus forecast and that was sterling's undoing.  Immediately after the announcement the pound held firm but it was not long before it headed lower.  Apparently investors had taken the 0.8% prediction with a pinch of testosterone and were looking for a stronger number.  When the figure merely matched the forecast they were disappointed because they had been expecting it to be better than expected.

Britain was not the only country to release disappointing data on Friday.  IFO's three measures of German business confidence fell short, as did the Michigan index of US consumer confidence.  US durable goods orders were unexpectedly strong, rising by 3.7% in September, but the number was inflated by transportation items (trains and boats and planes); without them orders were down by -0.1% on the month.

This morning IFO releases its figures for German business confidence, the European Central Bank publishes the money supply numbers for September and Italy reports on August's retail sales. After lunch come US durable goods orders and the finalized University of Michigan index of consumer sentiment.

The biggie today is the first stab at third quarter UK economic growth, announced at half past nine. In the second quarter, gross domestic product (GDP) expanded by 0.7% after growth of 0.3% in Q1. The estimate for this morning's figure is that Britain's economy grew by 0.8% in Q3. The announcement is fraught with risk for sterling. A lower number would undoubtedly be negative for the pound and a higher one would almost surely be positive but what if GDP growth comes in on target at 0.8%? Will investors be satisfied that the UK economy is accelerating or are they expecting the figure to be better than expected?

"Luxury" branding is not just for shell suits and handbags. With the advantage of luxury branding you can sell just about anything to arriviste plutocrats as long as it is exclusive and costs loadsamoney. The trick is to identify a demand among the nouveau-super-rich and cater to it as expensively as possible. It works particularly well with wine, because if the buyer ever drinks his $5k-a-cork claret he will probably share it with folk who are either too sycophantic or too clueless to notice its shortcomings. Tapping into this market was a father-and-son team in Italy who passed off "at least" 400 bottles of Vino Collapso as 1990 Romanee-Conti, for which they received "at least" €5,000 a clip. The fraud was discovered not by their witless clientele but by the eponymous vintner, who spotted that global consumption exceeded his own output.

Arguably, the buyers of the fake plonk were behaving more rationally than whoever it was that paid $24k each for three genuine bottles of the same vintage at auction earlier this year. The sellers of sterling yesterday presumably thought they were behaving rationally too, though some chilling might be necessary if they hang onto their positions for too long.

The law of unintended consequences is clearly as much of a mystery to M. Serres as it is to the central bankers who have been so keen to provide investors with "forward guidance" about their monetary policies. Ben Bernanke at the US Federal Reserve was one of the first to go down that route when he said interest rates would remain ultra-low until unemployment fell to 6.5% and that quantitative easing would continue until the jobless rate went down to 7%. The Bank of England's Mark Carney made a pledge along similar lines three months ago. Since then, both men have had to watch their currencies being pushed this way and that by investors micro-managing their positions in response to every statistic that might affect the achievement of those employment targets.

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Anybody else getting excited yet???? Guy Fawkes will be dropping flyers and posters off all around town. Message them or call 407-401-9690 if you would like some.Just booking the band and working up the last details. Tell your friends, tell your neighbors.... let's show em how it's done!

Whilst it is never true to say that "nothing" is going on in the FX world, an observer could be forgiven for thinking that to be the case at the end of last week. The Australian and NZ dollars strengthened by about 0.5%, as did the Norwegian krone, the Swedish krona weakened by a similar proportion and that was it. Nothing else moved. The US and Canadian dollars, the euro, the Swiss franc, the Japanese yen and the British pound all start today within a dozen ticks of Friday's opening levels.

It looked very much as though, after more than two weeks of angst about the US debt ceiling nonsense, investors had run out of inspiration. Well, almost run out: the prospect of a prolonged period of Federal Reserve stimulus has persuaded many of them to chase higher interest rates once again, hence the success of the Aussie (2.5% benchmark interest rate) and Kiwi (2.5%) dollars. That logic could have played a part in the divergence of the northern Scandinavians too, as the NOKky (1.5%) strengthened against the Stocky (1%), but Thursday's news of an uptick in Swedish unemployment will have contributed to the move.

The only winners of the quixotic Congress budget battle are federal employees, who will have had double their usual paid vacation this year, and stock markets, which will benefit from the Federal Reserve's $85bn-a-month subsidy for longer. Nobody knows quite how much longer, but the working assumption is that the government shutdown and its knock-on effects will have shaved half to three quarters of a percentage point off US gross domestic product (GDP) growth this year. The assumption is that the Fed, in recognition of this, will delay the wind-down of its quantitative easing programme.

That might be good for equity prices - and for higher-yielding currencies - but it isn't good for the US dollar. For the second day in a row it has been the worst performer among the major currencies, this time in a conference league of its own. The dollar is down by a cent and three quarters against sterling and by one and a quarter cents against the euro.
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